Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NFI Group Inc (NFYEF, Financial) reported significant year-over-year improvement in financial metrics, including double-digit growth in vehicle deliveries and revenue.
- The company achieved its first quarter of positive net earnings since 2021, with a nearly 400% increase in adjusted EBITDA.
- NFI's aftermarket segment delivered record performance, with $162 million in revenue and $35 million of adjusted EBITDA, both up 18% year over year.
- The backlog value increased to USD11.8 billion, reflecting a higher portion of zero-emission vehicles and pricing actions taken since mid-2022.
- NFI Group Inc (NFYEF) has made progress in managing working capital, resulting in positive free cash flow generation and a strong liquidity position.
Negative Points
- Supply chain challenges persist, particularly with components like seats and wiring harnesses for electric buses, which may continue through 2024.
- The company faces delays in certain component deliveries, impacting production schedules and requiring active management with suppliers.
- Despite improvements, the company still has to deal with legacy inflation-impacted contracts, which have affected margins.
- The ramp-up in production rates is being approached cautiously to avoid excessive offline buses and increased work-in-process inventory.
- The adoption of milestone payment structures in contracts is still in progress, with varying levels of success across different customers.
Q & A Highlights
Q: Can you talk about the sustainability of the aftermarket segment's strong performance?
A: Paul Soubry, President and CEO: The aftermarket segment's strong performance is expected to continue through 2024 and 2025. This is driven by ongoing customer demand, product mix development, and the exit of some competitors from the market. We are also focusing on managing costs, particularly freight.
Q: What are your plans for addressing the company's capital structure and leverage ratio?
A: Brian Dewsnup, CFO: We do not plan to issue additional equity. We aim to fund our working capital needs and capital spending through cash flows. We are exploring options to refinance our debt to potentially lower our overall interest expense.
Q: Can you provide more detail on the expected production rates for the next few quarters?
A: Paul Soubry, President and CEO: We expect sequential improvements in production rates, with Q3 higher than Q2 and Q4 higher than Q3. The fourth quarter typically sees the highest volumes due to customer tax depreciation strategies.
Q: How is the Alexander Dennis business performing, particularly with the new EV buses?
A: Paul Soubry, President and CEO: Alexander Dennis has introduced several new EV models and is seeing strong order interest, particularly in the UK. The business is recovering well, and we are leveraging this technology for global markets.
Q: Are zero-emission buses (ZEBs) higher margin products?
A: Paul Soubry, President and CEO: ZEBs have a higher EBITDA dollar per unit but a lower margin percentage compared to traditional buses.
Q: How are milestone payments progressing under the new FDA guidelines?
A: Paul Soubry, President and CEO: We have successfully negotiated milestone payments into new contracts and some existing ones. This has helped improve our working capital efficiency, with about $45 million in milestone payments achieved so far this year.
Q: What are the main supply chain challenges you are facing?
A: Paul Soubry, President and CEO: The main challenges are with wiring harnesses and seat supplies. We are managing these by adding redundancy in our supply chain and adjusting production schedules to mitigate delays.
Q: How is the demand for motor coaches and ARBOC vehicles?
A: Paul Soubry, President and CEO: Motor coach demand, particularly from private operators, is recovering well. The ARBOC business is also strong, with a backlog extending into 2025 and 2026. We are exploring opportunities for medium-class zero-emission vehicles.
Q: Are you confident in reaching your ZEB delivery targets despite supply chain issues?
A: Paul Soubry, President and CEO: While there are always risks, we are comfortable with our guidance for Q3 and Q4. We have laid in advanced inventory and are managing our supply chain closely.
Q: How does the ZEB backlog split between firm orders and options?
A: Paul Soubry, President and CEO: The ZEB backlog likely has a higher percentage in options compared to firm orders. However, all ZEB deliveries planned for 2024 are in the firm backlog.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
